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Krishna Mohan Agarwal Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1985)13ITD378(All.)
AppellantKrishna Mohan Agarwal
Respondentincome-tax Officer
Excerpt:
1. the assessee is an individual. he filed his return of income on 16-3-1979 declaring an income of rs. 17,400 only as interest from krishna mohan agarwal. the form of return also contained a column no.12(b) for showing income arising to spouse/minor child, etc., or any other persons referred to in chapter v of the income-tax act, 1961 ('the act'). this column was left blank by the assessee. he also did not show any income in part iii of the return, which relates to income exempt from tax. the assessment was made by the ito on 14-2-1980 under section 143(3) of the act, on the declared income of rs. 17,400.2. the ito, subsequently, came to know that the assessee's minor sons, shri prabhu prakash, som prakash and jyoti prakash had been admitted to the benefits of partnership in the firm of.....
Judgment:
1. The assessee is an individual. He filed his return of income on 16-3-1979 declaring an income of Rs. 17,400 only as interest from Krishna Mohan Agarwal. The form of return also contained a column No.12(b) for showing income arising to spouse/minor child, etc., or any other persons referred to in Chapter V of the Income-tax Act, 1961 ('the Act'). This column was left blank by the assessee. He also did not show any income in part III of the return, which relates to income exempt from tax. The assessment was made by the ITO on 14-2-1980 under Section 143(3) of the Act, on the declared income of Rs. 17,400.

2. The ITO, subsequently, came to know that the assessee's minor sons, Shri Prabhu Prakash, Som Prakash and Jyoti Prakash had been admitted to the benefits of partnership in the firm of Ballabh Das Kanhaiyalal, Palia, District Lakhimpur Kheri. He was of the view that the incomes falling to the shares of the above minors were includible in the assessment of the assessee in terms of Section 64(1)(iii) of the Act.

This section reads as under: (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly--** ** ** (iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm; We will refer to the history of this section a little later, while dealing with the contentions of the parties.

3. Since the assessee had not declared the income falling to the minor children either in column 12(b) of the return referred to above or in part III thereof, the ITO had reason to believe that by reason of the omission or failure on the part of the assessee, to disclose fully and truly all material facts necessary for his assessment, income chargeable to tax had escaped assessment for the assessment year under appeal. This led him to initiate action under Section 147(a) of the Act, by issue of a notice under Section 148 of the Act. In response to this notice, the assessee filed a return on 5-3-1981 again declaring the same interest income of Rs. 17,400. However, this time, he also showed the incomes falling to the minors in part III of the return with the following observations: The assessments of minors have already been completed separately.

The assessee is not liable to be assessed on this share profit of minors as Section 64(1)(iii) has been inserted after the end of previous year of the assessee.

Rejecting these contentions, the ITO made the assessment on 26-3-1982.

In this assessment, he included the incomes of the minors from the firm of Ballabh Das Kanhaiyalal also.

4. The assessee appealed to the AAC. Several contentions were raised before him. It was first contended that the shares of the minors related to the period, which expired on 9-9-1975 and since the amendment to Section 64(1)(iii) was introduced with effect from 1-4-1976, i.e., after this date, the said income could not be included in the assessment of the assessee. The contention was rejected by the AAC observing that in view of the explicit provision of Section 64(1)(iii), the income of the minors was taxable in the hands of the assessee. He also observed that since the amendment to the above section was applicable for the assessment year 1976-77, the inclusion of the income in the assessment of the assessee was justified in the above assessment year. It was next contended before him that the minors were separately assessed by the same ITO and without considering their assessments, the ITO was not justified in including the said income in the hands of the assessee. It was further contended that while framing the original assessment, the ITO was fully aware of the income earned by the minors and the legal position and, therefore, the provisions of Section 148 could not be applied to the case. This contention was also rejected by the AAC on the ground that the assessee failed to disclose the said information in his return of income. He finally dismissed the appeal.

5. The assessee is now in appeal before us. The contentions raised before the AAC were reiterated before us. The first contention was that the reopening of the assessment was not valid. In our opinion, there is no merit in this contention. We have already stated above that the assessee had not shown any income against column 12(b) or part III of the original return, which obviously misled the ITO to believe that the assessee had no such income. The escapement of income, therefore, occurred due to the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, which were responsible for the escapement of income. The provisions of Section 147(a) are, therefore, clearly applicable to the case. This was the view taken by the Supreme Court in the case of CIT v. Smt. P.K. Kochammu Amma [1980] 125 ITR 624. The observations of the Court appeared at page 630 of the report. It is laid down after the amendment in the form of return carried out with effect from 1-4-1972 providing that 'income arising to spouse or minor child or any other person as referred to in Chapter V of the Act' there is no longer any scope for arguing that the assessee is not bound to disclose such income in the return to be furnished by him.

6. It was next contended by the learned Counsel for the assessee that the original Section 64(1)(ii) [corresponding to Section 64(1)(iii) of the new section] before its amendment by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976, roped in only that income which arose directly or indirectly to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm in which such individual was a partner. According to him, the omission of the words 'in which such individual is a partner' from original Section 64(1)(ii), which was renumbered as Section 64(1)(iii) with effect from 1-4-1976 was to refer only to the income, which arose after 1-4-1976 and that this omission had no relevance to the assessment year 1976-77.

Referring to the various provisions in the Taxation Laws (Amendment) Act, 1975, he contended that all of them did not come into effect on 1-4-1976 but were effective from different dates and, therefore, there was nothing wrong on the part of the assessee to have a belief that even the amendment to Section 64(1)(ii) was relevant only to the income arising after the above date to a minor and not to the assessment year itself. On behalf of the department, it was submitted by the learned departmental representative that it was well settled that any amendment which is in force at the beginning of the relevant assessment year must govern the case, though the amendment is made after the income under assessment is earned. In other words, the Act, as it stands amended on the 1st April of a financial year must apply to the assessment for that year. In this connection, he also referred to certain decided authorities.

7. We have carefully considered the submissions placed before us. It is no doubt correct that various provisions in the Taxation Laws (Amendment) Act, 1975 were effective from different dates. However, Section 64(1) was made effective from 1-4-1976. It, therefore, applies to the assessment year 1976-77. It is also a substantive section and the law as on 1-4-1976, must relate to the assessment year of that year. The Supreme Court in the case of Jain Bros. v. Union of India [1970] 77 ITR 107 has laid down that it is for the Legislature to decide from which date a particular law should come into operation. We, therefore, reject this contention of the assessee, particularly when the original return was filed on 16-3-1979 and there could have been no doubt by that time that Section 64 as amended was applicable to the assessment year 1976-77.

8. Another submission made before us was that since the source of investment in the names of the minors was not the assessee, the share falling to the minors could not be included in the assessment of the assessee under the above section. Section 64(1)(iii), as is relevant for the assessment year under appeal, is clear on the subject that in computing the total income of an individual, there shall be included all such income as arises directly or indirectly to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm. This section does not distinguish between a minor whose source of investment is parent and a minor whose source of investment might be elsewhere. It is a blanket section and is applicable to the income of all the minors, who have been admitted to the benefits of partnership in a firm.

9. The last contention that was raised before us was that once the assessments had been made on the minors themselves, the same income could not again be included in the assessment of the assessee. We are not impressed with this argument either. In the first place, double taxations are not prohibited under the Act. This principle was also laid down by the Supreme Court in the case of Jain Bros. (supra). In any case, an income has to be assessed in the assessment of a person in whose hands it is legally liable to be assessed irrespective of the fact whether it has or has not been assessed elsewhere. The assessee has to seek the remedy for cancellation of the assessments of the minors under other provisions of the Act. We are aware of the decision of the Supreme Court in CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory [1966] 60 ITR 95. That decision, however, relates to the partners of a firm or to an AOP. It was held that the partners of an unregistered firm might be assessed individually or they might be assessed collectively in the status of an unregistered firm and the ITO could not seek to assess the one income twice, i.e., once in the hands of the partners and again in the hands of the unregistered firm. This principle was earlier extended by the Supreme Court to an AOP and its members in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225. This principle, however, cannot be extended to the present case, which relates to the minors and their father. We, therefore, reject this contention also. In our opinion, therefore, the reopening of the assessment under Section 147(a) is valid and similarly, the inclusion of the shares falling to the minors in the assessment of the assessee is also legally correct.


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